Problem 23.5A (Static) Budgeted Income Statement and Cash Budget (LO23-1, LO23-2, LO23-4, LO23-5)

Rizzos has been in business since January of the current year. The company buys frozen pizza crusts and resells them to large supermarket chains in five states. The following information pertains to Rizzos first four months of operations.

	Purchases		Sales
January	$	40,000	$	62,000
February		32,000		49,000
March		44,000		65,000
April		24,000		42,000

Rizzos expects to open several new sales territories in May. In anticipation of increased volume, management forecasts May sales at $72,000. To meet this demand, purchases in May are budgeted at $42,000. The company maintains a gross profit margin of approximately 40 percent.

All of Rizzos sales are on account. Due to strict credit policies, the company has no bad debt expense. The following collection performance is anticipated for the remainder of the year.

Percent collected in month of sale	30	%
Percent collected in month following sale	60
Percent collected in the second month following sale	10

Rizzos normally pays for 80 percent of its purchases in the month that the purchases are made. The remaining amount is paid in the following month. The companys fixed selling and administrative expenses average $12,000 per month. Of this amount, $4,000 is depreciation expense. Variable selling and administrative expenses are budgeted at 5 percent of sales. The company pays all of its selling and administrative expenses in the month that they are incurred.

Rizzos debt service is $5,000 per month. Of this amount, approximately $4,500 represents interest expense, and $500 is payment on the principal. The companys tax rate is approximately 35 percent. Quarterly tax payments are made at the end of March, June, September, and December.

Required: a. Prepare Rizzo's budgeted income statement for May.

b. Prepare Rizzo's cash budget for May. Assume that the company's cash balance on May 1 is $25,000.